Emerging wine-producing areas such as the Midwest and South -- California is the top U.S. wine area -- could see output cut by up to half from the worst U.S. drought since 1956, researchers and winemakers said.

"Everybody is looking for a really great harvest (for quality) ... but a smaller harvest," said Cary Greene, chief operating officer for WineAmerica, an industry group in Washington.

The drought also has battered corn and soybean crops in Illinois and other states, leading to larger losses than expected, the government said on Friday.

But for grapes, the dry weather has meant concentrated flavor and sugars and a reduction of pests and disease, translating into higher-quality fruit.

Whether higher wine prices will follow is too early to say, Greene said. But wineries hit by drought might opt to put the higher-quality 2012 grapes into pricier brands, such as reserves.

"Consumers are price sensitive and we are conscious of that as an industry," he said.

Industry experts said a double whammy of late frosts and dry weather had hit many vineyards. Harvests in some areas, such as Tennessee, Georgia and Nebraska, were running about two to three weeks earlier than normal.

Some growers also have had to trim away fruit as parched vines shut down, especially younger ones that lack older roots that can reach down as far as 50 feet (15.2 meters).

Jim Ballard, owner of the James Arthur Vineyard in Raymond, Nebraska, the state's biggest, said he would be lucky to get more than half his normal yield of 200 tons (181 metric tons) from hybrid grapes designed to survive the region's harsh winters.

"We could be producing some incredible wines this year, but there might not be as much of it," said Ballard, a former broadcast journalist who started the 400-acre (162-hectare) winery on his father-in-law's farmland.

"I'm sure we're going to see prices go up for the customer."

U.S. wineries outside California have mushroomed since the 1980s, with the number roughly quadrupling since 2000 to about 8,000, WineAmerica's Greene said.

The United States is the world's No. 1 wine market and California boasts about 90 percent of the output on average, according to the Wine Institute, a California industry group.

Total U.S. wine sales last year, including from foreign producers, totaled $32.5 billion.

CALIFORNIA "GOOD TO GREAT YEAR"

With California only moderately affected by dry weather, producers in the state seem to be having "a good to great year in both quality and size of harvest," said Nancy Light, a Wine Institute spokeswoman.

But the $200 million wine industry in Illinois could see its normal yield of three to five tons of grapes per acre halved, said Bill Shoemaker, a recently retired University of Illinois research specialist.

Scott Osborn, the president of Fox Run Vineyards, where grapes are grown on the site of an old dairy farm in New York's Finger Lakes region, said vines had "basically shut down" after almost no rain from late May to the third week of July.

But recent wet weather has revived the vines at Fox Run, whose 55 acres overlooking Seneca Lake include Chardonnay, Riesling, Lemberger and Merlot grapes.

"If we continue to get rain we're looking at a halfway decent harvest," said Osborn, a former California real estate developer who moved to New York to produce wine in the 1980s.

In the South, output in Tennessee and Georgia could fall 30 to 40 percent, said David Lockwood, a professor of plant science at the University of Tennessee.

Wine makers in neighboring Canada also have been hit by dry weather. In Ontario, where Riesling and Cabernet Franc grapes dominate, production is expected to drop to 55,000 tons from a normal 62,000 tons, said Debbie Zimmerman, chief executive of the Grape Growers of Ontario. (Reporting by Ian Simpson; Editing by Paul Simao)

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